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From the talk of the President of the Republic of Azerbaijan Heydar Aliyev at the meeting with the President of “Itera” gas company Igor Makarov – Presidential Palace, August 28, 2001

Heydar Aliyev: Igor Viktorovich, welcome to Azerbaijan!

Good commercial relations between your company and Azerbaijan have been set up and I appreciate it as a positive factor. Unfortunately, we haven’t cooperated with you before. But I feel you enlarge the expanding geography of your activity. Thus, you are in Azerbaijan. I think we should start and continue effective cooperation. It is not your first visit to Azerbaijan, though we are meeting for the first time. Perhaps we have met before, but I don’t remember…

Igor Makarov: I was part of Russian delegation when Mr. Vladimir Putin visited Azerbaijan.

Heydar Aliyev: I am sorry, I could not recall you.

Igor Makarov: There were many people then.

Heydar Aliyev: So you are acquainted with Azerbaijan. I am listening to you now.

Igor Makarov: Heydar Aliyevich, thank you for accepting me. I also thank you for your evaluation of our company. An evaluation of a head of state is a high appraisal for us. We will try to receive such remarks further. I would like to tell you briefly about our company, because sometimes rumors are spread around.

According to the statistics of 2000, we sold 92 billion cubic meters of gas. Our company was ranked the second worldwide by the volume of sales. The first is occupied by Russia`s Gazprom Stock Company. Media frequently claims we sell gas purchased from Gazprom. However, the recent audit carried out in our company confirmed that we don’t possess any gas from Gazprom. Gazprom has nothing to do with our gas. Of course, we appreciate our relations with Gazprom, but we are a private independent international company producing our own gas in Yamal, north of Russia. Annually we produce 30 billion cubic meters of gas. In the first quarter of next year we will start exploiting a new gas deposit, thus reaching 40-42 billion cubic meters.

In 3 or 4 years our company plans to increase gas production up to 70 billion cubic meters. The gas in the balance of our company is ours, also coming from Uzbekistan, Kazakhstan, Turkmenistan. It makes 90 billion cubic meters altogether annually. Our company operates almost in all ex-Soviet countries and sells a small part of gas to Gazprom to export it to Europe. Itera group includes 130 companies and operates in 24 countries. Besides, we possess enterprises producing plastic utensils. We obtain chemicals from natural gas and produce utensils. We built a plant in Moscow, which is the biggest one in CIS. We have an enterprise in Belarus as well. The largest quarry of non-metallic materials in Europe also belongs to us – it is situated in Stavropol Krai. Annually we produce one million tons of metal. We own a metallurgy plant in Moldova. 92% of metal produced there is exported to the United States and Europe. We have a gold extracting company in Mongolia. But the main direction of our activity is energy sector. We direct 80% of our investments to this sphere. In recent 4 years we have made following investments: USD 840 million in Russia, USD 200 million in Ukraine, USD 70 million in Latvia, USD 20 million in Estonia. All these projects are mainly aimed at energy sector. Now we are preparing a large program on privatization of energetic entities in Belarus and Moldova, as there is nearly 7 billion cubic meters of gas left in our storages. We intend to direct that gas to electric plants, produce electric energy, and sell produced energy to ex-Soviet and European countries.

We are proud to have come to Azerbaijan for business. Thank you for your support. Now we are working on registration and opening our office here. We are ready to increase gas export to Azerbaijan. If it is of any interest to you, we can also export oil to Azerbaijan and refine it here, as we purchase oil from Turkmenistan and sell it after refining. We are ready to export liquefied natural gas to Azerbaijan and restore gas storages here. We are very interested in this business. It is an interesting business: gas is an excess in summer, but a lack in winter. So keeping gas in storages helps to balance the situation. We are ready to re-establish those reservoirs with the help of credits. We are aware of the capacity of your reservoirs is not big, but we could increase their capacity to 3-4 billion cubic meters with technical means. We are interested in Azerbaijan as a strategic partner. Good relations have been set up between the State Oil Company and Itera group. If you support us, we can further develop our cooperation.

Heydar Aliyev: It was interesting to listen to you. By the way, I was not so aware of the scale of your company`s activity. I had only heard about it. Such great potential of your company, its being ranked the second on gas production and sales, your operations also in other sectors are good examples for a new system of economic cooperation and relations. This is what we call a private company. Isn`t Gazprom a private company?

Igor Makarov: The state owns 40% of shares.

Heydar Aliyev: Does the state have any shares of your company?

Igor Makarov: No, it does not. Our company is 100% private. We plan to be listed in New York Stock Exchange in 2-3 years. The annual circulation of our company is over USD 5 billion.

Heydar Aliyev: I appreciate your successes. I evaluate them as a result of new economic relations set up in post-Soviet area. I used to work in Moscow and I am acquainted with oil and gas sector. Exploitation of the Yamal field started after its discovery at the end of the 70s. Our compatriot late Orujov contributed a lot to gas industry. Do you remember him?

Igor Makarov: Certainly, we do.

Heydar Aliyev: By the way, there was no Ministry of Gas Industry back then. He was the first deputy minister of oil industry. I recall he raised actual issues several times, appealed to the Central Committee. He was received by Brezhnev twice. I was working in Baku then. He had already passed away by the time when I relocated to Moscow. But he used to visit Baku frequently and share his proposals with me. He had interesting remarks. He spoke about necessity of the north and even beyond – the Arctic Ocean. That area has big reserves. I recall all this. A system existed then – the Ministry of Gas Pipelines. It was chaired by former Secretary of Tyumen Oblast Party Committee Sherbina. Later he became deputy chairman of the Council of Ministers. Back then it was a big sensation that the Soviet Union constructed such effective gas pipelines and exported gas to Europe. Now the quality of business is different. Your company is one of the biggest firms in the world. I think that despite enormous potential of the Soviet Union, it was impossible to work effectively within that regime. Nevertheless, I have devoted many years of my life to service in that system.

I am glad that I received a lot of information on your company. When I was told it is necessary and possible to reach an agreement and sign a treaty with you on gas import, first I doubted and thought – we also produce gas, though it is not enough for us, - we will buy gas, but we will have to pay for it. But we reached an agreement and it became possible. I got acquainted with the documents and learnt Azerbaijan was sent 3 billion cubic meters of gas this year. It is planned to import 4 billion cubic meters next year. It is a big support and aid to us. As you know, together with Western companies we discovered enormous “Shah-deniz” gas field. We will extract gas soon, but it will take some time. Now our needs are also provided by you. Thus, I praise and congratulate you. I consider our relations very profitable for both sides and support their expansion.

Igor Makarov: We will do our best for it. We are ready to make investments. It is strategically important for us. Thus, we will expand our cooperation. We can take part in construction of gas pipeline through Georgia together with you. We have been exporting gas to Georgia for eight years. It means we have experience in Georgia and we could combine our efforts. We would be very glad to cooperate with you and develop this cooperation.

Heydar Aliyev: As for enlarging our gas reservoirs, I think it is very necessary for us. I hope you will reach an agreement with our officials. I praise this activity. Those reservoirs were built in the 1970s. I recall that when I worked here, we extracted 16 billion cubic meters of gas and supplied the entire republic with gas. Gradually we felt shortage and constructed those storages. Shortly, I would be glad if we reach an agreement.